Rev. Rul. 56-68

Advice has been requested whether an affiliated group of corporations which filed a consolidated return for the calendar year 1954 on or prior to September 15, 1955, may elect to file separate returns for the calendar year 1955 by reason of the retroactive repeal of sections 452 and 462 of the Internal Revenue Code of 1954.

Sections 452 and 462 of the 1954 Code were repealed on June 15, 1955, for all taxable years beginning after December 31, 1953, and ending after August 16, 1954, by Public Law 74, 84th Cong., 1st Sess., 69 Stat. 136, C.B. 1955-2, 748. Income tax regulations relating to consolidated returns were promulgated on August 29, 1955, as Treasury Decision 6140, C.B. 1-955-2, 317.

Section 1.1502-11 of the Income Tax Regulations, supra , provides, in part, as follows:

CONSOLIDATED RETURNS FOR SUBSEQUENT YEARS. * * * If a consolidated return is made under section 1502 for any taxable year, a consolidated return must be made for each subsequent taxable year during which the affiliated group remains in existence unless (1) a corporation (other than a corporation created or organized, directly or indirectly, by a member of the group) has become a member of the group during such subsequent taxable year, or (2) subsequent to the exercise of the election to make consolidated returns, subtitle A of the Code to the extent applicable to corporations, or the regulations under section 1502 which have been consented to, have been amended and any such amendment is of a character which makes substantially less advantageous to affiliated groups as a class the continued filing of consolidated returns, regardless of the effective date of such amendment, or (3) the Commissioner, prior to the time of making the return, upon application made by the common parent corporation and for good cause shown, grants permission to change. For the purpose of (2), above, the expiration of a provision shall be considered as an amendment to the Code made on the date of such expiration.

Affiliated corporations were granted a new election to file separate returns for the first taxable year for which returns were due to be filed after the date of enactment of the 1954 Code and for the first taxable year ending after the date of such enactment. See Rev. Rul. 54-365, C.B. 1954-2, 13.

The time for filing a return for a taxable year ending on or after December 31, 1954, but before, June 30, 1955, by a corporation which is a member of an affiliated group having the privilege of making a consolidated return for such taxable year was extended to September 15, 1955. See Rev. Rul. 55-174, C.B. 1955-1, 141.

Section 1.1502-10 of the Income Tax Regulations, supra , provides, in part, as follows:

(a) When privilege must be exercised . The privilege of making a consolidated return under section 1502 for any taxable year of an affiliated group must be exercised at the time of making the return of the common parent corporation for such year. For this purpose, the return in considered as made on the due date of such return (including any extensions of time granted by the Commissioner), regardless of actual previous date of filing * * *.

Section 1.1502-1(a) of the Income Tax Regulations provides that the privilege of making a consolidated return is given upon the condition that all corporations, which have been members of the affiliated group at any time during the taxable year for which the return is made, consent to the regulations under section 1502 applicable to such taxable year and any amendments thereof duly prescribed prior to the last day prescribed by law for the filing of the return. The making of the consolidated return is considered as such consent.

In view of the fact that the repeal of sections 452 and 462 of the 1954 Code, and the issuance of regulations under section 1502 of the 1954 Code relating to consolidated returns, occurred prior to the date on which the election to make consolidated returns was required to be exercised, neither event gave rise to a new election for subsequent years. Neither the provisions of the 1954 Code nor the consolidated return regulations which are applicable to taxable years beginning after December 31, 1953, and ending after August 16, 1954, have been further amended since September 15, 1955, so as to make substantially less advantageous to affiliated groups as a class the continued filing of consolidated returns for subsequent years.

Accordingly, it is held that neither the repeal of sections 452 and 462 of the 1954 Code nor the promulgation of the regulations governing consolidated Federal income tax returns gave rise to the privilege of making a new election to file separate returns for the calendar year 1955 by an affiliated group of corporations which filed a consolidated return for the calendar year 1954 on or before September 15, 1955. Consequently, an affiliated group of corporations which filed a consolidated return for the calendar year 1954 or for the first taxable year ending after August 16, 1954, must, therefore, file a consolidated return for the calendar year 1955 or the fiscal year ending in 1955 or 1956, whichever is applicable, unless a new election is made available under the provisions of section 1.1502-11 of the Income Tax Regulations.